Until the financial crisis, says W. Brian Arthur, an external professor at the institute, the supercomputing advancements “kind of lay dormant, like an underground river.” Now, academics are slowly starting to rediscover the institute’s work. Policymakers have barely sniffed at it, even though its possibilities are immense. Arthur envisages an open-sourced economic modeling effort to “stress test” major policy proposals—like Obama’s health care law—and run them through simulations to see how the economy might react and what might go wrong.
But in Washington, new thinkers are easily drowned out by the high priests of rational expectations, who have resurfaced, postcrisis, to espouse their doctrine. Most prominently, former Federal Reserve Board Chairman Alan Greenspan recently declared in a Financial Times op-ed that “with notably rare exceptions (2008, for example), the global ‘invisible hand’ has created relatively stable exchange rates, interest rates, prices, and wage rates.” Greenspan and other defenders of the status quo have found a receptive audience in a public that is sour on Washington and searching for economic hope amid the sluggish recovery.
High-profile attempts to shift the conversation, or to suggest that anything but unfettered free markets should be the goal of policymakers, are often meet with howls. The conservative Media Research Center warned that last month’s Bretton Woods conference was an attempt to “remake the financial order” and, in the process, “take the United States down a peg or three”—which is to say, to undermine the free market and America’s supreme role at the center of it.
Washington’s meager efforts to advance economic understanding have gotten bogged down in politics. The congressionally appointed Financial Crisis Inquiry Commission issued split verdicts on the causes of the meltdown, with Democrats endorsing a market-failure explanation and Republicans blaming government regulation. Congress created an Office of Financial Research, but its top spot remains unfilled.
“A lot of economists are completely frustrated by the fact that what [lawmakers] are saying in Washington completely bypasses what the economists are saying,” says Christian Zimmermann, a University of Connecticut economist who has developed a widely used system ranking economists worldwide by how often other economists cite their papers. Today’s debate still turns on the axis of economic thinking that evolved in the Reagan era, much of which persisted through the trade-opening presidency of Bill Clinton. Yet even back then a legitimate and vigorous discussion about competing paradigms took place, and more were willing to listen to the other side. “Think-tank [creation] was really only finding its feet,” Notre Dame’s Mirowski says. “Now, it’s absolutely ingrained.”
Many think tanks, and candidates from both parties, reap major financial support from large corporations that have often turned the increased complexities of the global economy to their competitive advantage. Those companies have a financial interest in staying free of interference from Washington, gaining as much dominance in their markets as possible, and leaving the risks for everyone else to absorb. As Summers noted in his Bretton Woods speech, some of the riskiest activities in the economy—including financial trading, nuclear-power generation, and deep-sea drilling—have grown so complex that the people who really understand the activities work in companies participating in them. In those areas, Summers said, “there’s hardly anyone that’s both knowledgeable and un-co-opted” by industry.
Making It Real
Even in the best of times, economics has hardly ever been a “pure” science unadulterated by politics. On the contrary, much of the last century saw a fierce conflict between free-market economists aligned with the GOP and Keynesian Democrats who tended to doubt the rationality of markets. The former were dubbed “freshwater” economists because they tended to work at inland universities near the Great Lakes, starting with the University of Chicago; the latter were known as “saltwater” because they usually flourished at such coastal universities as MIT, Harvard, Berkeley, and Stanford.
The economic debates in Washington today largely break along those old lines. Obama embraced a nearly $1 trillion Keynesian-style stimulus bill, and in the ensuing two years, Republicans sought to paint him as an out-of-control government spender and a burdensome overregulator. The president and his fellow Democrats, meanwhile, charge that Ryan’s plan and the rest of the GOP economic agenda are driven by discredited supply-side thinking, a critique that causes some Republicans to bristle. “The surprising thing about the Ryan budget is how little it does on taxes,” says Keith Hennessey, who served as chief economic adviser to President George W. Bush. “It is focused almost entirely on making big and risky choices on the spending side.” Yet Ryan’s plan would drive the country back toward deregulation by also repealing much of the Dodd-Frank financial-regulation bill that passed last year.